Geico accused of unfair auto insurance rates

[UpInArms]

http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-03-20T202200Z_01_N20277773_RTRIDST_0_FINANCIAL-GEICO.XML

NEW YORK, March 20 (Reuters) - A leading U.S. consumer group on Monday accused Geico Corp. of using consumers' education backgrounds and occupations as criteria in setting auto insurance rates, resulting in discrimination against minorities and lower-income people.

The Consumer Federation of America (CFA) charged that the No. 4 U.S. auto insurer, has adopted rating methods and underwriting guidelines in 44 states that directly tie rates to education and occupation.

Geico, a unit of Berkshire Hathaway Inc. (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research), the insurance and investment company controlled by billionaire Warren Buffett, rejected the charges. It called them "an offensive attempt to link fundamentally fair and actuarially sound industry practices with invidious discrimination."

<snip>

Under Geico's guidelines, he said, a New Orleans factory worker without a high school education would pay $2,636 for insurance, 91 percent more the $1,382 that a white-collar worker with a graduate degree would pay for the same vehicle and location.

"There is clearly a disparate impact on minorities and lower income people," Hunter said in an interview. "If it isn't violative of the law, it should be. It strikes me as very unfair."

<snip>

"What is very troubling is that Geico appears to be using these guidelines as a de facto rating method," it said. "Geico's methodology is reprehensible because not everyone has the opportunity or can afford to pursue a four-year college degree."

...more...

[RubyDuby in GA]

1. It's absurd really

A person's education level has nothing to do with how they drive. I know some pretty educated people that I simply will not get in a car with - they scare the bejeebus out of me!

[The Straight Story]

2. I do know many companies use your credit score

and charge you more the lower it is. Seems a little crazy to me.

[sui generis]

5. Credit agencies have a prurient interest in making your score

as low as possible for the slightest infractions - they can legally charge you higher interest rates because you're a "higher risk", and profit more from you.

Dear Elected Democratic Representative, yet another push over bend over grab your ankles bit of legislation you guys signed right off on.

Unfortunately, Warren Buffet thinks that it's perfectly acceptable - of course, when you calculate your percentage earnings in millionths of a point and you're making hundreds of millions on those numbers, every little bit of fuckery counts.

To hear him sputter is mind boggling.

[Copperred]

13. Auto Rates are most certainly a crock of shit.....demand NAMED OWNER INSUR

Everyone should be demanding that states allow NAMED OWNER INSURANCE

See:

http://www.motorists.org/issues/insure/named_owner.html

It's only available in NV, but should be everywhere.

[pitohui]

17. why should it be anywhere?

maybe i'm not understanding this, but it sounds like if i am the "named owner" then only i can drive the car and have it covered, i can no longer go out w. my friend and have a designated driver

sounds like a terrible idea

you gotta insure the car because sometimes, guess what, the owner of the car will need a ride home from the pub or a ride home from the hospital or otherwise not be able to drive the car

please clarify, too many times i've had to get someone else drive me home from even a simple thing like oral surgery or an eye exam w. dilation

and every time my car gets worked on the mechanice gives it a spin to check it out!

my car needs to be insured whenever it is driven or i could end up holding the bag for major liability issues if someone else drives it and has an accident

[lynne]

30. It doesn't appear that Nevada's Operator's Policy is appropriate -

- for private passenger family auto vehicles that are tagged for normal road use based on this article. The article specifically references "hobby cars" several times. Hobby, antique and specialty vehicles often have specific tags that limits their regular road use. The Nevada Divison of Insurance states that this type coverage is primarily to serve the needs of auto collectors as follows:

From the Nevada 2006 auto guide on their Division of Insurance website:

OPERATOR’S POLICY An operator’s policy is different from standard liability insurance. This insurance coverage insures the driver, not the car. That is, the driver would be insured no matter what vehicle was driven. This insurance coverage does not cover another person driving your car with or without your consent. According to Nevada Revised Statute 485.186, another important requirement of an operator’s policy is that the number of motor vehicles that the policyholder owns must be greater than the number of persons in his household who possess a driver’s license. Therefore, each person in his household who possesses a driver’s license is covered by the operator’s policy of liability insurance. This type of auto insurance is intended primarily to serve the needs of automobile collectors.

[pitohui]

41. thanks i couldn't see how it would work for family cars either

appreciate the clarification

my car works, and yeah sometimes a friend or another family member has to drive while i'm getting work done on my middle-aged corpus

the car itself has to be insured, whoever is driving, not just when i'm able to drive

[Submariner]

3. KILL 'EM!!!

[ClintonTyree]

7. I LOVE IT!

I hate Geico's commercials, get that stupid lizard! I prices Geico's rates once and I found them more expensive than many other companies. I'd never buy insurance from them, I know that.

[BlackHeart]

4. Some use credit scores too

does that seem fair?

[Bombero1956]

10. It amazes me

that I would pay more than the buffoon in chief simply because he went to Yale/Harvard and I'm a high school graduate. He's been convicted of DUI and I have a spotless driving record. Lucky for me Geico doesn't do business here in Massachusetts.

[magellan]

21. I've encountered this and no, it doesn't seem fair.

What's someone's credit score got to do with selling them insurance? If you don't pay your premium the insurance company cancels your coverage...period. So what's the reason for checking credit scores?

[tridim]

6. Not defending Geico, but I think most service based companies do this

For example, State Farm gives you a "discount" if you're female, if you're married and if you get good grades. The married criteria really bothers me, since I'm a single male and a safe driver (yet I'm high risk according to their rules). Insurance rates should be based on your driving record, and nothing else.

[Sadie5]

9. They are overpriced

I asked for a quote and it was twice as high as other companies. No thanks!

[Xithras]

47. They also tend to jack prices on people without warning.

My dad was a State Farm customer for many years, and I became one too when I started driving simply because I was an addendum on his policy. When I discovered Geico in the early-mid 90's (I think), they offered me a rate that was far, far lower than State Farms, so I switched. The rate was great up until about four years ago, when they almost doubled on me. Did I have any tickets? Accidents? New teen drivers in the household? No, no, and no. My driving record is flawless, and my wife has one accident in ten years. The reason for the increase was that they had "reassessed the risk in my zip code".

I called around the next day and signed up for AAA. Not only did they give me a rate that was lower than my original Geico rate, but it came with all kinds of bonus goodies that Geico didn't offer. It was then that I discovered an interesting truth about the car insurance business. Geico, 21st Century, Mercury, and many of the other "low cost" insurance companies are only cheaper if you have a bad driving record. If you're actually a good driver and aren't in one of the extreme risk groups (like teenagers), State Farm, Allstate, or AAA can usually offer you better rates and service.

[MindPilot]

12. I've been with State Farm for so long that I actually get a

"loyalty discount" and my homeowners is with them too so I doubt if I could do any better elsewhere.

But I really do wonder how it's OK to charge males more and that not be discrimination. And I've asked this question since I was about 16: "What in the hell do grades have to do with how likely I am to crash my car?"

[Xithras]

16. The answer? Statistics.

Statistically, people with good grades get into fewer accidents than those with bad grades. Statistically, married women get into far fewer accidents than single men (the difference is quite large). Statistically, people in white collar jobs get into fewer accidents than blue collar workers.

IMO, it's really not all that discriminatory. Different people have different lifestyles, and your lifestyle directly influences your likelihood for getting into an accident. When I was young poor and single, I used to attend many parties, drink regularly with my friends, and drive far faster than I should have. Now that I'm an older upper middle class fuddy duddy, I rarely speed, rarely drink, and I can't even remember the last time I went to a party that didn't involve a kids birthday. Modern me, who only drives 100% sober to work and back every day, is far less likely to get into an accident than younger, more inebriated me. That's why I pay about half the insurance today (at 31) than I did a decade ago.

Math doesn't lie, and it doesn't discriminate. It does sometimes give us answers we may not like, as is the case with car insurance, but it's still reality.

[seriousstan]

19. HOW DARE YOU!! A well thought out logical analysis.

I am disgusted with the direction you are trying to hijack this thread.

[lynne]

27. You're right - the answer is Statistics -

- and I wonder if the education connection may have more to do with occupation than anything else. Auto apps ask for occupation and occupation directly ties into vehicle use. A blue-collar worker may be driving from one job site to another during the day, increasing his exposure and risk. A white collar worker will be driving to his office and parking his vehicle for his work day and will have less opportunity to have an accident than the blue-collar risk who is on the road several times a day. Occupation relates directly to both vehicle use and to education, which may be where this comes into play.

Financial scores are used for both auto and home underwriting as those with higher scores likely have newer vehicles and homes (older houses and cars have more losses) and they statistically file fewer claims. Those with higher financial scores are also considered more desirable as they have a tendency to pay premiums on time.

[Xithras]

44. Parking is also a big issue.

Typically, industrial areas tend to have a lot more crime than office areas. Blue collar workers usually leave their vehicles outside and unguarded in these higher crime areas during the workday, making them potential prey for car thieves and vandals. White collar workers usually park in garages or guarded/observed areas, making them less likely to have their cars stolen or vandalized.

Then you have the lifestyle portion of it. How many blue collar workers drive down to the corner bar or a friends house and slam down a few beers while watching "the game"? How likely are they to LIVE in lower income neighborhoods with higher crime rates? How likely is it that the roads and streetlights in their lower income neighborhoods aren't kept up as well? When they do get into accidents, how likely is it that the blue collar worker will be driving a modern car with the latest safety equipment to minimize occupant injury?

All of these contribute to the statistical fact that blue collar workers are more likely to file claims than white collar workers are. There's nothing biased about it.

[MindPilot]

35. Insurance "statistics" are nothing more than institutionalized classism

What if the statistics reveal that Asian women have more accidents than Christians living in Texas? Or if Black men under 30 are more likely to have a car stolen than a Jewish woman over 45? Should the Jewish woman get a discount? Or should the young Black man be charged more?

Of course if an insurance company were actually asking these questions, there would be huge outrage. But how is profiling based on income, occupation, social status, or academic achievement any different than profiling on race? The answer is society has accepted that it is perfectly OK to fuck over single men especially if they happen to be in a low-level job, because they are only men, only workers, and haven't reproduced. But a CEO with a family is a valued member of the community and we must grant him privilege.

[Xithras]

43. It has nothing to do with privilege.

Personally, I would prefer a system that assigns rates based on driving history alone, but I don't see that happening any time soon. The problem is that even THAT system would be attacked as unfair, because statistically single men, teens, and blue collar workers statistically file more claims and get into more accidents and citations than married men, older people, and white collar workers do. Taken as a whole, blue collar workers would still be paying more because they have poorer driving records. That's not an opinion or a discriminatory statement, it's a fact borne out by police tickets and accident reports. It's numeric fact.

The problem is that some people want everybody to pay the exact same rates even though we don't all drive the same. In effect, you want good drivers to subsidize bad drivers. You have to remember that insurance is a pool. Everybody pays into that pool so that money can be paid out when a member files a claim. Our current system says that the more you take out of that pool, the more you put in. Also, the more LIKELY you are to take out of the pool, the more they are going to demand from you to join it.

I'm a scientist, and I tend to look at things logically. Discrimination is only discrimination when it's UNFOUNDED. If you have solid, unbiased, mathematical proof that condition X exists, it is NOT discrimination to say as much. It's a FACT that men under 27 are statistically far more likely to get into car accidents. It's a fact that blue collar workers are more likely to park their vehicles in high crime industrial zones, while white collar workers probably park in guarded lots and garages. It's a fact that I live in an area with one of the highest auto theft rates in the country. It's a fact that men become less likely to get into a car wreck when they get married. There's nothing discriminatory or biased about those statements, they are eminently provable facts.

Political correctness should never outweigh facts. This is one of the big problems with democracy IMO, people tend to vote for what they perceive as "fair" over what is actually the most equitable. Our current system, which assigns rates based on your mathematical likelihood for filing a claim, is perfectly equitable...some people just don't think it's fair. I try not to argue with math and simple facts, because all the arguing in the world isn't going to change them.

[patcox2]

45. So are test scores! So is any measurement of ability! I have the answer!

We will simply ignore reality and assume all people are the same! We will make blind people airline pilots. Have the mentally disabled become university professors. The highly intelligent and adept will shovel shit, and we can have the illiterate doing brain surgery.

What a wonderful world once "classism" is eliminated. We will all just pretend that differences between people don't exist.

[Freddie Stubbs]

50. There are laws on the books prohibiting the use of race and religion

for the purpose of insurance rates.

[happyslug]

15. In my home state of Pennsylvania giving female a discount is illegal

And has been since the 1970s. Prior to the mid-1970s the state permitted different rates for having males or females drivers under the age of 25. There was a huge howl when the State Court ruled such difference in insurance rates was illegal under the State Equal Rights Act and State Laws making it illegal to discriminate because of Sex. The insurance industry tried to show this was do to actual statistical difference between these two groups (Males and Females under age 25) but the Court would not accept it.

Now most families accepted this for most families had both males and females under age 25 and thus the affect of the switch overall was not that great, but for those families who had only women in that age category they saw a huge jump in their insurance rates as the use of Sex was outlawed (in effect these families with nothing but females under age 25 was subsidizing those families with males under age 25).

Now Pennsylvania still permits discrimination based on marriage (You get a discount for the Statistics basically show once a male marries his accident rate drops to those of females under age 25, or males over age 25).

This is one of the differences between the sexes, males tend to believe they are better drivers than they are at that age, while women tend to believe they are NOT as good as they are (And males tend to settle down once married).

More recent statistics indicate the biggest problems for most teenagers is NOT driver alone, but having another teenager in the car with them but how to add that into the calculation as to insurance rates has NOT yet been done by the Instance Companies (But I am waiting for something, like discount for a one seat car maybe??).

[Orangepeel]

20. does that also hold for dry cleaning and haircuts?

I'm just wondering if it is also illegal when women get charged more.

[happyslug]

22. A couple of years ago Dry Cleaning/washing was a mini-Scandal

In seems that when men took their Shirts to a laundry, the Laundry washed them, but if a Woman brought in her Shirts they would be Dry Cleaned (at a much higher fee). When asked why the Cleaners gave several excuses, but basically it became clear it was because that how it has always been done. It was a "Scandal" for a few weeks then forgotten and people went back to how it was being done.

The problem seems to be if a Male brought in a Shirt, the Cleaners just assumed he wanted it washed. On the other hand if a Woman brought in a Blouse the Cleaners assumed she wanted it Dry-cleaned (You can almost hear them say to themselves "If she didn't want it Dry-cleaned why did she not was it herself?"). Now if the woman would asked for her blouses to be Washed to be washed it was washed, the problem was no one asked, everyone did things by habit. No discrimination for no actual discrimination was intended, it just occurred and if anyone would bring it up to the Cleaner's attention the Cleaner would make the required adjustments.

As to haircuts, it is more complex, most men just want a cut and that it, most women want something more. Thus often you are comparing apples and oranges based on want it being requested. Thus you often see "Men's haircut" advertised in the same place as Women's Styling, and if a woman want it, she can get it, but that is rare, most women I know want something better than a quick cut of their hair.

[lakemonster11]

32. The haircut thing ---

It could have to do with how often we get our hair cut. Since I (like the stereotypical woman) have long hair, I only have to get my hair cut three or four times a year. My boyfriend, my dad, and my brother, on the other hand, get their hair cut much more often. I think we probably all pay about the same amount over the course of the year.

It could be that hair-stylists know that they can charge women more because they need haircuts less often, whereas they need to give men discounts so that they can afford to get their hair cut every month.

Anyway, that's my theory. :shrug:

[rkc3]

8. Personal experience with Geico

I had Geico for about 2 weeks - I discussed changing from State Farm to Geico for car insurance. The annual policy would have saved me about 40% over State Farm. It was a no-brainer. Then I got the bill - it was for a 6 month policy, not annual.

I called to confirm the screw up - they told me they don't offer policies on an annual basis. When I asked what the customer service rep could have meant when she told me it was for an annual policy, I was told she must have been new.

Needless to say, I relish every opportunity to bash them when I can.

[SomewhereOutThere424]

11. Doing things without a paper trail seems to be more and more dangerous...

It isn't just voting. Verbal contracts on 'great deals' is usually, in my mind, a big warning sign when dealing with big companies or industries.

[Copperred]

14. Auto Rates are most certainly a crock of shit...demand NAMED OWNER INSURAN

Everyone should be demanding that states allow NAMED OWNER INSURANCE

See:

http://www.motorists.org/issues/insure/named_owner.html

It's only available in NV, but should be everywhere.

[Ian David]

18. Never trust a damn lizard

Drive Blue!

Drive Progressive!


Driving for Progress Wrap Up


Posted by Raven on September 13, 2005 - 11:48am

On February 23rd, 2005 we started a campaign we called "Driving for Progress". In that campaign we encouraged BuyBlue readers to find out how Progressive Auto Insurance stacked up in terms of complaints and price in their state.

We recommended them because they are the only "Blue" auto insurance company we have found to date. In addition to their political contributions, their chairman Peter Lewis has been heavily involved in funding the intellectual future of the left along with people like George Soros.

We determined that nationwide the average annual insurance premium was $1000. We wanted to see if we could track how many people changed their auto insurance to Progressive Insurance, and we decided to do this by asking people to email us when they made the switch.

Auto insurance is something that you don't want to change every day and over the course of the past 6 months I think we've seen quite a shift. When the campaign ended shortly before the new web site launched we had recorded that about $325,000 had been shifted from red insurance companies to Progressive Insurance.

That might not seem like much when you compare it to their bottom line, but it is a significant number. Furthermore that is only the reported number, over that 6 month time period it is a certainty that many readers saw our campaign, acted on it and didn't inform us about it. It is also important to note that absolutely no advertising was behind this number, it all came from word of mouth and chance.

In the future we plan to run other focused campaigns like this. I would personally chalk this one up as a success. We also have more ambitious plans to provide a counter for all purchases shifted from red companies to blue companies to expand on this concept. For example if you spent $50 at Barnes & Noble instead of Amazon.com then you could update the counter to include your $50. This would steadily tick up just like many of the national debt and Iraq war cost counters we are all familiar with.

So thank you if you participated and let us know about your switch, it is very important to have these kind of statistics.


More:
http://www.buyblue.org/node/2428

[rocktivity]

23. Oh, that's just great--they're an Air America Radio sponsor!

x(
rocknation

[regnaD kciN]

29. But they're also a long-time sponsor of OxyRush...

...so I guess it's a wash.

[thinkingwoman]

24. How could they know

my educational background without asking?

Their insurance saves me a ton of money and never once was I asked about my education or income before the quote (and the quote matched perfectly with the bill). Education would be an issue, since my hubby and I are co-insured and we have different education levels.

Further, Geico's rates are NOT cheaper for my ex who makes a hell of a lot more annually than current hubby and I do.

These charges have not been proven and don't jibe with any of my personal experience, so I'll keep my geico insurance and wait and see.

[Trillo]

25. So when is educational background going to be used to price

food? Why does a similar apple cost the same amount to two different folks shopping in the same store?

The insurance pricing model teaches us that the same product, X amount of coverage, should cost different folks varying amounts.

[wickerwoman]

33. But it's not the same product.

Basically when I'm buying insurance, I'm taking bets on the chance that I will need to claim it. Some people are just safer bets than others.

The apple analogy is bogus. Do you think it's unfair when you go to the track and all the horses pay off differently? But according to the apple model when I bet on a horse I'm buying a product and since all the products are the same (horses) they should all pay off the same.

Statistically, women, married people, older people, people with higher salaries are less likely to get into an accident and need to claim their insurance. Therefore, the insurance companies cut them some slack to keep their business and make up the profits on people who are statistically more likely to have an accident.

Is it discriminatory to bet on a horse that you know can run faster than another one?

[Trillo]

51. To the consumer, it is the same.

Perhaps to the corporate seller it is a gamble, but to the driver who is required to have insurance, it is simply "X amount of insurance" which is required for legality. The complexity comes from the corporation needing to insure its profit because it is an unprofitable game if it is played fairly and equitably.

"Do you think it's unfair when you go to the track and all the horses pay off differently?"

The law doesn't require that citizens go to the track and bet on horses. The law does require that citizens have "X amount of" automobilie insurance if they drive.

[patcox2]

46. Well, yes, thats right. Insurance costs vary depending who buys.

The cost of corn flakes is the same no matter who you sell them to.

Whereas you will find that selling auto insurance to alcoholics or life insurance to the elderly actually costs more than selling auto insurance to accountants and life insurance to 20 year old fitness nuts.

[dionysus]

26. hmmm

i pay 650 a year fpr pretty good coverage (upstate NY). liberty mutual tried to rip me off though

[Javaman]

28. I dumped their asses for Progressive. From Red to Blue, fuck you. LOL n/t

[FlaGranny]

31. Interesting. We have Geico

and we live in an area with fairly high rates (suburban/urban area). We had Nationwide for many, many years. Their rates kept going up and up until we finally switched to Geico. We got slightly better coverage which included road service (Nationwide did not have road service) for just about the same rate. We've had the Geico for a couple of years and the rates keep going DOWN every year. We're now paying around $1700 for two vehicles, a 1997 and a 2001. Neither of us has a college degree. I'm not sure how good or bad that is, but compared to our old Nationwide policy, it is about $250 a year cheaper (for 2 vehicles).

[cap]

34. yeah, but wait till you have an accident

Geico will skyrocket. They cherry pick the good drivers and then they really hammer you after you have an accident.

[MindPilot]

36. Raising rates after a claim is just extortion. eom

[FlaGranny]

40. Well,

IF we have an accident, I know what to do about it. ;-)

[Phx_Dem]

37. Stats describe populations

Which is where the problems start. The ins. cos. may be able to come up with very exact risk assessments for the population. However, this does not mean that any given person in that group REALLY represents that degree of risk. In fact, the entire concept of ins. is that the risk is supposed to be spread around.

IMO, insurance companies should be owned by the policy holders, like USAA. I am a USAA member, when the company has excess revenue (profits) they give it back to the members. We also pay the lowest rates in the industry.

[Bigmack]

38. Problem solved...

?

On edit... sorry, submariner... didn't notice you'd posted this earlier.

[DUHandle]

39. A new trick for an old dog

It sounds like the results of data mining has been applied actuary.

The old school technique worked simply by zip code.

I seem to recall a lawsuit against American Family for higher rates in predominately black neighborhoods.

[Frank Cannon]

42. GEICO, for lack of a better word, sucks

My fiancee and I signed up with GEICO for the lower rates, got all the paperwork out of the way, got married, and then went on a one-week honeymoon in a place with no phones. When we got back home, there were three messages on our answering machine asking for some sort of additional information that they forgot to get from us at the sign-up. Since we were out of pocket for a big FIVE business days, and since they couldn't get ahold of us, they just DROPPED US from our insurance.

When we called them to explain the situation, they would absolutely not listen to us. It was just surreal. We then were faced with the prospect of getting new car insurance immediately with the stigma of having just been DROPPED from our previous insurance. I have never, EVER, had that experience with any other car insurance company.

Needless to say, I got GEICO issues.

[annofark]

48. And how is this illegal

I think is profiling could be looked at as good business practice. It is quite clear that certain groups of people have higher rate of incidents than others.

Young girls have higher rates than older men...I thought that this was a regular practice.

[Le Taz Hot]

49. A little background about Geico

Originally an acronym of Government Employees Insurance Co. In 1978 (I believe that was the year), they went belly up. They went belly up because they were insuring everyone, including high-risk drivers (as in 2-3 moving violations, 1-2 accidents within a 3-year period). In California, when an insurance company goes under the existing insurance companies must assume the risk of those insureds. As a result, everyone's rates went up.